Remember last fall when a bunch of Nobel economists assured us that gobs more spending by Joe Biden wouldn't have serious inflationary impacts?

 Here's what the ring leader of Tom Nichols' vaunted expert class of economists had to say at the time:

Some, however, have invoked fears of inflation as a reason to not undertake these investments. This view is short-sighted. ... We need safe school buildings and bridges, and affordable child and elder care, whether inflation is 2% or 5%. With the investments being financed by tax increases, the inflationary impacts will be at most negligible ...

The Build Back Better package ... would transform the U.S. economy to be more efficient, equitable, sustainable, and prosperous for the long run, without presenting an inflationary threat.

From Joe Stiglitz' letter last September, here. Robert Shiller of all people signed on to this load of hooey. Carl Schramm unloaded on all this yesterday, here.

Stiglitz wrote that with a straight face when inflation had already soared to 5.3% in July. The orgy of coronavirus spending in 2020-2021 was already stoking the inflation engine, but the experts then simply ignored it, and called for more! more! more!

Now look where we are, even without more.

Government spending in the United States hasn't been financed by tax increases in decades. We wouldn't be $30 trillion in the hole if it were. It's financed by borrowing, and the interest payments on that borrowing progressively accumulate to crowd-out other spending. One day soon interest payments on the debt will become the biggest part of the budget, severely limiting our ability to allocate resources responsibly.

 

 

The Liberal Attack on Bill Clinton Continues, This Time From Joe Stiglitz

As picked up by Slate, here, which especially savors a straw man when mixed with a delusion:

[A] powerful ideology—the belief in free and unfettered markets—brought the world to the brink of ruin. Even in its heyday, from the early 1980s until 2007, American-style deregulated capitalism brought greater material well-being only to the very richest of the richest country of the world. ...

A decade ago, in the midst of an economic boom, the United States faced a surplus so large that it threatened to eliminate the national debt. 

The Keynesian Moment: "Markets Can Stay Irrational Far Longer Than You Can Stay Solvent"

Very thoughtful and wise words of warning today, making sense of the nonsense, from Barry Ritholtz over at The Big Picture. For the original as it appeared go here.

What Does the Economy Have to Do with the Market?

Posted By Barry Ritholtz On October 6, 2009 @ 7:33 am

“There’s a lot of risk going ahead of some big bumps. There’s a very big risk that markets have been irrationally exuberant.”

-Nobel Prize-winning economist Joseph Stiglitz

Far be it from me to challenge the 2001 economics Nobel prize winner, but sometimes, indeed, quite often, markets decouple from the economic fundamentals.

I can show you many eras in history when the economy was awful, and nonetheless markets rallied strongly.

There have also been times when earnings did not matter, and profitability was irrelevant. There are times when animal spirits run the show, when irrational exuberance was in charge.

Such is the result of giving two million primates lots of money and keyboards and a belief they can make a living based on numbers and letters moving around — on a screen, in a futures pit, on an exchange floor, or even under a buttonwood tree.

Most mainstream economists — with notable exceptions like John Maynard Keynes, Richard Thaler, and Robert Shiller — have traditionally paid little attention to this reality. To a trader or investor, rationality matters far less than what the tape was doing.

Indeed, prices matter a great deal more to traders than theories or annoying things like “Objective Reality." To a trader, prices ARE the objective reality; to them economic theorists are peripheral players trying to rationalize reality.

I believe you can describe and explain what the market is doing, but in doing so, we must acknowledge Keynes' terribly accurate observation that “Markets can stay irrational far longer than you can stay solvent.”

I’ll have more on this later in the week . . .